But, before you submit your investment proofs, read on to understand this procedure in detail.

What is Investment Declaration?

The income declaration form covers certain sections of the Income-tax Act, 1961, but it is not the only route to save tax. It would be prudent to avail the benefits of the other Sections as well, so as to ultimately reduce the tax outgo. It's important to optimally restructure your salary.

At the beginning of the financial year, employers ask for investment declaration from employees. And as per your projected investment declaration, your monthly tax go and salary is calculated.

At this point, you need not make all your investments. You can systematically plan and make investments throughout the year and submit investment proofs at before the deadline.

*Where the aggregate rent paid during the previous year exceeds INR 1 lakh** Actual HRA; or Rent paid in excess of 10% of basic salary + Dearness Allowance (DA) if in terms of service; or 50% of basic salary + DA in case of Chennai, Delhi, Kolkata, Mumbai (40% of salary + DA in case of other cities)

How can I benefit from investment declaration?

By declaring your tax saving investments, your net salary will be higher. It will include the requisite amount of deductions available.

But you must plan your investments in advance and avoid last minute tax planning mistakes.

Please note that though you make this declaration at the start of the year, it does not mean you can change it. For instance, if Rahul made a declaration of investments of upto Rs 1 lakh under Section 80C, and by the end of the year he wishes to invest additional amount of Rs 50,000, he can do so.

So, your final tax savings may not be the same. Total adjustment based on final proof submission is made sometime between January and March of next year.

To avail of a complete exemption for the allowances, remember to optimally structure your salary. To understand the different components of the salary structure, read on…

Basic Salary: The basic pay forms the base component for additional benefits such as provident fund, House Rent Allowance (HRA), etc. While a higher basic means higher benefits, on the flip side, it is fully taxable. Therefore, it is necessary to have an ‘optimal’ basic salary. A very high basic salary may result in a higher tax outgo. Therefore, you need to maintain the right balance.

HRA: If you live in a rented house/accommodation and your organisation provides HRA benefits, you could use it to lower your tax liability. Likewise, if you stay with your parents in an accommodation owned by them, you could pay them rent.

The maximum amount that can claimed as an exemption under HRA is the least of –

Actual HRA; or

Rent paid in excess of 10% of basic salary + Dearness Allowance (DA) if in terms of service; or

50% of basic salary + DA in case of Chennai, Delhi, Kolkata, Mumbai (40% of salary + DA in case of other cities)

Leave Travel Allowance (LTA): As a salaried individual, you can claim LTA for any journey made either alone or with dependent family members in India. The maximum amount you can claim is the least of:

The amount actually incurred; or

The amount of LTA allowed

The exemption extended is for two journeys performed in a block of four calendar years. The current block is 2014-2017. It is vital to note that the exempted amount is restricted only to expense incurred on travelling to the destination and does not include expenses such as hotel bills, food, etc.

Transport allowance: Expenses incurred to commute between your home and work place is also exempt from tax. The maximum amount that is exempt is Rs 1,600 per month.

Medical reimbursement: Expenses you or your family incurred for medical purposes can also help in reducing the tax liability. A maximum of Rs 15,000 can be claimed every financial year on account of medical expenses. But to claim this, you are required to submit, to your employer, the medical bills for the financial year stating the total amount you intend to claim.

If you have claimed all the permissible exemptions of your employer and still have high amount of taxable income. Then, your employer can add a few items from the exemption list in the table below:

Allowance

Exemption

Maximum limit

Children Education Allowance

Rs 100 per month per child up to a maximum of two children

Rs 2,400 p.a. for two children

Children Hostel Expenditure

Rs 300 per month per child up to a maximum of two children

Rs 7,200 p.a. for two children

Conveyance Allowance

Allowance granted to meet the expenditure on conveyance in performance of duties of an office

Exempt to the extent of expenditure incurred

Research Allowance

Expenditure incurred for encouraging the academic research and other professional pursuits

Exempt to the extent of expenditure incurred

Meal Vouchers

Food in office premises or through non-transferable paid vouchers usable only at eating joints provided by an employer is not taxable, if cost to the employer is Rs 50 (or less) per meal

Depends on the number of working days. If a company works 25 days a month, the amount will work out to Rs 2,500 p.m. (Rs 50*2 meals *25 days) or Rs 25,000 p.a.

Gift Voucher

Gifts in cash or convertible into money are fully taxable

Rs 5,000 p.a.

b) Gift in kind or vouchers up to Rs 5,000 in aggregate per annum would be exempt, beyond which it would be taxable.

Mobile/telephone reimbursement

Expenses on telephones including a mobile phone incurred by the employer on behalf of employee shall not be treated as taxable perquisite.

Exempt to the extent of expenditure incurred

Newspaper and periodicals

Subscription or purchase of newspapers, books and periodicals relating to your profession are fully exempt against actual bills

Exempt to the extent of expenditure incurred

Motor Car Allowance

The maintenance and running expenses are fully exempt under certain conditions for a car owned by the employer or employee.

Out of the total expenses, only a very small portion may get taxed subject to certain conditions

Role of home loan in your tax savings exercise

Both, the “repayment of principal amount” and “payment of interest” are eligible for tax benefit.

The “repayment of principal amount”, makes you eligible to claim a deduction upto a sum of Rs 1.50 lakh under Section 80C. This is available irrespective of whether it is a Self-Occupied Property (SOP) or a Let-Out Property (LOP).

Further, a first time home-buyer can avail for an additional tax benefit of Rs 50,000, after satisfying certain conditions which are:

Value of the property is Rs 50 lakh or less

Loan taken for this house is Rs 35 lakh or less

Loan has been sanctioned by a financial institution or a housing finance company

Loan has been sanctioned between 01-04-2016 and 31-03-2017

As on the date of the sanction of the loan, no other house is owned by you

But the additional tax benefit exemption can be availed of after first exhausting limit under Section 24(b) for the interest portion.

The payment of interest amount (for the loan amount availed) is available for deduction under Section 24(b).

Additionally, if you as “first time home-buyer” satisfy conditions as mentioned above for Section 80EE, the maximum sum, you can avail of to deduct your interest under Section 24(b) is Rs 2 lakh for SOP, plus an additional tax benefit of Rs 50,000 under Section 80EE.

In case, a property is on rent (LOP), the actual interest payable is eligible for deduction under Section 24(b), thereby not being subject to any maximum limit. This applies even in the case where you have two home loans for two different properties, where one is self-occupied and the other is let out on rent.

Similarly, if you have taken a loan for the purpose of reconstructing, repairing, or renewing the property, the amount of deduction under Section 24(b) you are eligible for will be restricted to Rs 30,000, irrespective of whether you want to stay in it or let it out on rent.

And if you are planning to buy a house, then you must use PersonalFN’s Home Loan EMI calculator to plan your EMI outflows.

To Sum-up

We at PersonalFN advise you to use all the permissible deductions to save tax. And submit your investment declaration proofs on time. Avoid procrastinating till the last minute, so you don’t aimlessly invest in tax saving investments. It is important for you to know the various routes to save tax on your income the legal way.

If you are unsure, consult a financial planner. Sometimes, its better to be late than sorry.

You can download our free Tax Planning Guide here. It will help you cross-check whether you are on the right track towards saving on taxes and to take timely action, in case you have missed any benefits.

For further professional assistance, you can directly get in touch with us at PersonalFN on 022-61361200 or write to info@personalfn.com and get your free financial health check-up done today. You can even get in touch with a Certified Financial Guardian in your vicinity.

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